U.S. Government Files Antitrust Suit Against Apple

by Jordan Richardson on April 12, 2012

The United States government has filed an antitrust suit against Apple Inc. and book publishers. The suit alleges that Apple and the publishers conspired to raise prices on e-books in efforts of limiting competition.

The government filed papers in U.S. District Court in Manhattan stating that they’d reached settlements with Hachette, HarperCollins and Simon & Schuster, but Apple and at least two publishing houses are still on the hook in the suit.

According to the lawsuit, Apple and the publishers conspired in the face of Amazon.com’s successes in selling e-books for under $10. The pricing model needed to be “adjusted” and the wholesale model that had assisted Amazon in dominating the e-book market for so long had to be brought down in favour of what’s called an “agency model.” The agency model dictates that publishers have price-setting power with respect to retailers. Under this approach, Apple was guaranteed 30 percent commission on each e-book sold. This was arranged as Apple introduced its iPad to the market.

“As a result of this alleged conspiracy, we believe that consumers paid millions of dollars more for some of the most popular titles,” Attorney General Eric Holder said. “We allege that executives at the highest levels of these companies, concerned that e-book sellers had reduced prices, worked together to eliminate competition among stores selling e-books, ultimately increasing prices for consumers.”

The publishing industry has long been concerned about Amazon and other similar retailers. For their needs, the book publishers prefer the agency model to a wholesale model because it allows them to sell things as they want. With the Kindle successfully selling e-books and asserting Amazon’s market dominance, however, something had to be done. Turning to Apple and its sure-bet iPad was one way, the publishers thought, to get things back on an “even keel.” Both groups were of like mind: Amazon’s “monopoly” had to go, one way or another.

“To effectuate their conspiracy, the publisher defendants teamed up with defendant Apple, which shared the same goal of restraining retail price competition in the sale of e-books,” the lawsuit said.

Amazon’s deep discounts suggest that the seller may be moving e-books at a loss in order to gain more business by volume. While one would think all is fair in love and capitalism, the publishers weren’t happy with Amazon pushing them for higher discounts despite the fact that the costs associated with producing e-books are almost non-existent.

As it stands now, the pricing model shift imposed by the publishers and Apple worked to reduce Amazon’s market share from 90 percent to around 60 percent. Barnes & Noble’s Nook e-reader slips in with roughly 25 percent, while Apple’s iBookstore hasn’t really taken off with around 10 to 15 percent thus far.

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Written by: Jordan Richardson. www.digitcom.ca. Follow TheTelecomBlog.com by: RSSTwitterFacebook, or YouTube.

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